Surtax on millionaires

March 29, 2011

According to Citizens for Tax Justice, the lowest 20 percent of earners - averaging $12,400 per year - paid 16 percent of their income to taxes (local, state and federal) in 2009.

The top 1 percent - earning on average about $1.3 million per year - paid 31 percent of their income to taxes.

Back in October 2009, at the Jack Kemp Foundation Dinner in Washington, U.S. Rep. Paul Ryan, R-Janesville, emphasized the need for economic growth.

"Today we're in the middle of a class warfare battle," he said, warning against the impulse to impose higher taxes on the rich. "We are much nearer to that 'tipping point,' where the majority pay little or no taxes but become dependent on government benefits."

Ryan has a point. The bottom 20 percent, which receives 3.5 percent of all income, pays just 1.9 percent of all taxes.

The horror.

"Class warfare might make for good politics, but it results in terrible economics," Ryan said during last year's tax policy debate. With Ryan's support, the Bush tax cuts were extended at all income levels, keeping class warfare at bay.

The economy in Ryan's district has suffered some terrible job losses. Many of those jobs now reside in low-wage nations.

In 2008, GM closed a Janesville plant, wiping out 2,800 jobs. Last fall, Chrysler - despite getting billions in aid from taxpayers - moved 850 jobs from Kenosha to Mexico where its total labor costs were reported at $8 an hour.

Ryan's solution to such setbacks is to protect private earnings. It is redistribution, he suggests, that is to blame for unemployment.

According to the conservative Tax Foundation, at least 60 percent of Americans receive more in federal government benefits and services (in dollar value) than they pay back in federal taxes. There is a grave danger, Ryan warns, in having a government-reliant majority subsidized by the few.

But how unbalanced is the tax structure that Ryan finds so troubling? The top 20 percent receives 59 percent of all income and pays 64 percent of all taxes, according to the liberal Citizens for Tax Justice.

"I do believe President Obama does believe more in economic redistribution," Ryan once told Fox News. "He's clearly a class warfare guy."

When it comes to redistribution, few politicians are as bold as U.S. Sen. Bernie Sanders, I-Vermont. Sanders has introduced legislation imposing a 5.4 percent emergency surtax on household income above $1 million. The new tax revenue, up to $50 billion a year, would go into an Emergency Deficit Reduction Fund.

In support of his idea, Sanders cites an NBC News/Wall Street Journal poll on the best ways to reduce the deficit. According to that February 2011 poll, a whopping 81 percent of Americans believe it is totally acceptable or mostly acceptable to impose a surtax on millionaires. (Fifty-five percent say totally acceptable.)

So, it's settled, then. Congress will adopt the surtax, President Obama will sign it, and shared sacrifice will begin.

Fox News, meanwhile, will hire Hugo Chavez.

Sen. Sanders is a democratic socialist. With that in mind, he might as well declare that deficit reduction requires "class warfare."

"Socialist governments traditionally do make a financial mess," former British prime minister Margaret Thatcher once said. Then came her conservative kicker for the ages: "They always run out of other people's money."

Truth is, Sanders does aim to vacuum other people's money. The term "sacrifice" implies willingness.

Today, only campaign cash seems to be handed over willingly, often with expectations of payback. Congress, coincidentally, does what it can to protect wealth.

A few years ago, billionaire investor Warren Buffett discovered that - as a percentage of income - he paid far less in taxes than his secretaries and clerks. He did this by following the federal tax code.

The tax cuts adopted during George W. Bush's administration left the U.S. with roughly 137 million jobs at the end of his term, about the same as when he took office. The national debt, meanwhile, was below $6 trillion when Bush took office and above $11 trillion when he left. Today, it's some $14 trillion.

The United States has revolutionized the concept of fiscal discipline by refusing to tax - regardless of how or where (Iraq, Afghanistan) it might spend.

Meanwhile, the top 1 percent of American households have about 35 percent of the nation's privately held wealth. In that context, a surtax of 5.4 percent on incomes above $1 million is, indeed, class warfare, though it's rather like warfare waged with a pea shooter.